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Pursuant to Rule 424(b)(3)
Registration No. 333-03795
PROSPECTUS
$540,261,000
[LOGO OF MARRIOTT APPEARS HERE]
MARRIOTT INTERNATIONAL, INC.
LIQUID YIELD OPTION(TM) NOTES DUE 2011
(ZERO COUPON--SUBORDINATED)
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This Prospectus relates to $540,261,000 aggregate principal amount of Liquid
Yield Option(TM) Notes ("LYONs") of Marriott International, Inc. (the
"Company") that may be offered and sold from time to time by the several
holders thereof ("Selling Holders"). The LYONs were issued by the Company on
March 25, 1996 at the issue price of $532.15 per $1,000 principal amount at
maturity (the "Issue Price"), and there will be no periodic payments of
interest. The LYONs will mature on March 25, 2011. The Issue Price of each
LYON represents a yield to maturity of 4.25% per annum (computed on a
semiannual bond equivalent basis) calculated from March 25, 1996. The LYONs
are subordinated to all existing and future Senior Indebtedness of the
Company. As of June 14, 1996, there was approximately $1.1 billion of Senior
Indebtedness outstanding. See "Description of LYONs--Subordination of LYONs."
The Company will not receive any proceeds from sales of the LYONs by the
Selling Holders.
Each LYON is convertible at the option of the Holder at any time on or prior
to maturity, unless previously redeemed or otherwise purchased, into common
stock, par value $1.00 per share, of the Company (the "Common Stock") at a
conversion rate of 8.760 shares per LYON (the "Conversion Rate"). The
Conversion Rate will not be adjusted for accrued Original Issue Discount but
is subject to adjustment upon the occurrence of certain events affecting the
Common Stock. Upon conversion, the Holder will not receive any cash payment
representing accrued Original Issue Discount; such accrued Original Issue
Discount will be deemed paid by the Common Stock received on conversion. See
"Description of LYONs--Conversion Rights."
LYONs will be purchased by the Company, at the option of the Holder, on
March 25, 1999 and March 25, 2006 (each, a "Purchase Date") for a Purchase
Price per LYON of $603.71 and $810.36 (Issue Price plus accrued Original Issue
Discount to each such date), respectively. The Company, at its option, may
elect to pay the Purchase Price on any Purchase Date in cash or shares of
Common Stock or in any combination thereof. See "Description of LYONs--
Purchase of LYONs at the Option of the Holder." In addition, as of 35 business
days after the occurrence of any Change in Control of the Company occurring on
or prior to March 25, 1999, LYONs will be purchased for cash by the Company,
at the option of the Holder, for a Change in Control Purchase Price equal to
the Issue Price plus accrued Original Issue Discount to the date set for such
purchase. In certain circumstances the Company's ability to pay the Change in
Control Purchase Price may be limited. See "Description of LYONs--Change in
Control Permits Purchase of LYONs at the Option of the Holder."
The LYONs are not redeemable by the Company prior to March 25, 1999.
Thereafter, the LYONs are redeemable for cash at any time at the option of the
Company, in whole or in part, at Redemption Prices equal to the Issue Price
plus accrued Original Issue Discount to the date of redemption. See
"Description of LYONs--Redemption of LYONs at the Option of the Company."
From and after a Tax Event Date (as defined herein), at the option of the
Company, interest in lieu of future original issue discount shall accrue on
each LYON from the Option Exercise Date (as defined herein) at 4.25% per annum
on the Restated Principal Amount (as defined herein) and shall be payable
semiannually on each Interest Payment Date (as defined herein) to holders of
record at the close of business on each Regular Record Date (as defined
herein) immediately preceding such Interest Payment Date. See "Description of
LYONs--Optional Conversion to Semiannual Coupon Note upon Tax Event."
For a discussion of certain United States federal income tax consequences
for Holders of LYONs, see "Certain United States Federal Income Tax
Considerations."
See "Risk Factors" beginning on page 3 for a discussion of certain factors
that should be considered by prospective purchasers of the securities offered
hereby.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The LYONs may be offered for sale and sold by the Selling Holders from time
to time in varying amounts at prices and on terms to be determined at the time
of sale. To the extent required, the name(s) of the Selling Holder(s), the
number of LYONs to be sold, the purchase price, the public offering price, if
applicable, the name of any agent or broker-dealer, and any applicable
commissions, discounts or other items constituting compensation thereto with
respect to a particular offering will be set forth in a supplement or
supplements to this Prospectus (each, a "Prospectus Supplement"). See "Plan of
Distribution." The Company will not receive any proceeds from any sale of
LYONs hereunder.
Selling Holders and any broker-dealers or agents that participate with a
Selling Holder in the distribution of any of the LYONs may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 (the
"Securities Act"), and any discount or commission received by them and any
profit on the resale of the LYONs purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act.
(TM)Trademark of Merrill Lynch & Co., Inc.
The date of this Prospectus is October 9, 1996.
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR
ANY OF THEIR RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR
SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, the Company is required to file periodic reports and other
information with the Securities and Exchange Commission (the "Commission").
Such reports and other information (when filed with the Commission) can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661, and Seven World Trade Center, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission at the above Washington, D.C. address at prescribed
rates. The Commission also maintains a site accessible to the public by
computer on the World Wide Web, at http://www.sec.gov/, that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company. In
addition, such material can also be inspected and copied at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, N.Y. 10005.
THE COMPANY HAS FILED WITH THE COMMISSION A REGISTRATION STATEMENT ON FORM
S-3 (TOGETHER WITH ALL AMENDMENTS AND EXHIBITS THERETO, THE "REGISTRATION
STATEMENT") UNDER THE SECURITIES ACT. THIS PROSPECTUS DOES NOT CONTAIN ALL OF
THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT, CERTAIN PARTS OF
WHICH ARE OMITTED IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE
COMMISSION. FOR FURTHER INFORMATION PERTAINING TO THE LYONS, REFERENCE IS MADE
TO THE REGISTRATION STATEMENT.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are hereby incorporated herein by reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 29, 1995;
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 22
and June 14, 1996; and
(iii) Current Reports on Form 8-K filed with the Commission on February 16
and April 9, 1996.
In addition to the foregoing, all documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and thereafter until the termination of the Offering of the
LYONs shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement or this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.
Any person receiving a copy of this Prospectus may obtain without charge,
upon request, a copy of any of the documents incorporated by reference herein,
except for the exhibits to such documents (unless any such exhibit is
specifically incorporated by reference therein). Requests should be directed
to Marriott International, Inc., 10400 Fernwood Road, Bethesda, Maryland
20817, telephone number (301) 380-4999, Attention: Corporate Secretary.
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RISK FACTORS
Prospective investors should carefully consider the following matters,
together with all other information set forth in this Prospectus.
RELATIONSHIP WITH HOST MARRIOTT CORPORATION
Prior to becoming a separate, publicly-held company on October 8, 1993, the
Company was a wholly-owned subsidiary of Marriott Corporation, which, directly
and through its subsidiaries, engaged in the present businesses of the Company
as well as in certain other businesses, including the development and
ownership of hotels. On October 8, 1993, Marriott Corporation (i) separated
the Company's present businesses from its other businesses through a
distribution of all outstanding Company common stock to the holders of
Marriott Corporation common stock, on a share-for-share basis, and (ii)
changed its name to Host Marriott Corporation (which, together with its
subsidiaries, is referred to herein as "Host Marriott").
A number of ongoing relationships create the potential for conflicts of
interest between the Company and Host Marriott, including conflicts that may
arise out of (i) Company-operated and franchised lodging properties owned or
leased by Host Marriott and lodging properties owned by partnerships
affiliated with Host Marriott; (ii) Host Marriott's indebtedness to the
Company under certain credit facilities and potential further indebtedness
under Company guarantees of certain Host Marriott obligations; (iii) a non-
competition agreement which limits competition between the two companies; (iv)
the fact that J. W. Marriott, Jr., Chairman of the Board and President of the
Company and Richard E. Marriott, Chairman of the Board of Host Marriott, are
major shareholders of and serve on the Boards of Directors of both companies;
(v) the fact that certain directors and officers of the Company (including J.
W. Marriott, Jr. and Richard E. Marriott) own shares of, have options and/or
rights to acquire shares of, or otherwise have significant interests in, Host
Marriott; and (vi) the Company's operation and franchising of other lodging
properties that compete with those owned by Host Marriott or its affiliates.
Despite this potential for conflict, the Company believes that the mutuality
of interest between the Company and Host Marriott is sufficient to keep these
ongoing relationships productive and beneficial for both companies. Moreover,
the Company has implemented policies and procedures to limit the involvement
of J.W. Marriott, Jr., Richard E. Marriott and other executive officers of the
Company with significant interests in Host Marriott in any significant
conflict situation between the two companies.
RESTRICTIONS IMPOSED BY LENDERS
Certain of the Company's loan agreements limit, among other things, the
ability of the Company to incur additional indebtedness, pay dividends, create
liens, sell assets or engage in mergers. These restrictions could limit the
ability of the Company to effect future financings or otherwise may restrict
corporate activities. A failure by the Company to comply with these
restrictions could lead to a default under the terms of one or more credit
facilities. The Company believes, however, that the limitations and
restrictions imposed by its loan agreements are reasonable and will not unduly
limit the Company's financial flexibility.
SUBORDINATION
The LYONs are general, unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company. Under the Indenture, generally, no payment of the
Principal Amount at Maturity, Issue Price, accrued Original Issue Discount,
Redemption Price, Change in Control Purchase Price or interest, if any, with
respect to any LYONs may be made by the Company, nor may the Company pay cash
with respect to the Purchase Price of any LYON (other than for fractional
shares) or acquire any LYONs for cash or property if (i) any payment default
on any Senior Indebtedness has occurred and is continuing beyond any
applicable grace period or (ii) any default (other than a payment default)
with respect to Senior Indebtedness occurs and is continuing that permits the
acceleration of the maturity thereof and such default is either the subject of
judicial proceedings or the Company receives notice of the default. Further,
upon any payment or distribution of assets of the Company to creditors upon
any dissolution, winding up,
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liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other similar
proceedings, the holders of all Senior Indebtedness will first be entitled to
receive payment in full of all amounts due or to become due thereon, or
payment of such amounts will have been provided for, before the holders of the
LYONs will be entitled to receive any payment or distribution with respect to
any LYONs. As of June 14, 1996, there was approximately $1.1 billion of Senior
Indebtedness outstanding. In addition, the LYONs are effectively subordinated
to all of the creditors of the Company's subsidiaries, including trade
creditors. The Indenture will not restrict the future incurrence of Senior
Indebtedness or other indebtedness by the Company or any of its subsidiaries.
See "Description of LYONs--Subordination of LYONs."
COMPANY STRUCTURE
A significant percentage of the assets and revenues of the Company are held
by or derived from the operations of the Company's subsidiaries. As a result,
trade creditors and other creditors of these subsidiaries may have a claim
that is structurally superior to that of the holders of the LYONs whose
recourse to the assets and revenues of these subsidiaries derives solely from
the equity interest therein of the company.
COMPETITION
The Company meets significant competition in both the Lodging and Contract
Services businesses. A discussion of competition is set forth herein under
"Business."
FORWARD-LOOKING STATEMENTS
When used in this Prospectus and the documents incorporated herein by
reference, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those projected, including:
competition within each of the Company's business segments, the balance
between supply of and demand for hotel rooms and timeshare units, the
Company's continued ability to obtain new operating contracts and franchise
agreements on current terms, the Company's relations with current and
potential hotel and retirement community owners and contract services clients,
the effect of international, national and regional economic conditions, the
availability of capital to fund investments in the Company's several
businesses, and other risks described from time to time in the Company's
filings with the Commission, including those set forth in Exhibit 99 to the
Registration Statement. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such statements. The Company also
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
THE COMPANY
The Company is a worldwide operator and franchisor of hotels, and is North
America's largest provider of food service and facilities management in the
corporate, health care and education markets. The Company's operations are
grouped in two business segments, Lodging and Contract Services, which
represented 59% and 41%, respectively, of total sales in 1995.
The principal executive offices of the Company are located at 10400
Fernwood Road, Bethesda, Maryland 20817. Its telephone number is (301) 380-
3000.
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USE OF PROCEEDS
The Company will receive no proceeds from any sales of LYONs made from time
to time hereunder.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED FISCAL YEAR
--------------------------- ------------------------
JUNE 14, 1996 JUNE 16, 1995 1995 1994 1993 1992 1991
------------- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges................... 4.7 4.8 4.8 5.0 4.7 4.3 4.7
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges as
prescribed by the rules and regulations of the Commission, earnings represent
income before cumulative effect of a change in accounting principle, plus,
when applicable, (a) taxes on such income, (b) fixed charges and (c) the
Company's equity interest in losses of certain 50%-or-less-owned affiliates;
less (x) undistributed earnings of 50%-or-less-owned affiliates, and (y)
interest capitalized. Fixed charges represent interest (including amounts
capitalized), amortization of deferred financing costs, the portion of rental
expense deemed representative of interest and, when applicable, the Company's
share of the interest expense of certain 50%-or-less-owned affiliates.
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DESCRIPTION OF LYONS
The LYONs were issued under an indenture dated as of March 25, 1996 (the
"Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). A copy of the Indenture, as amended, is filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is also
available for inspection during normal business hours at the principal
corporate trust office of the Trustee. The following summaries of certain
provisions of the LYONs and the Indenture do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of
the provisions of the LYONs and the Indenture, including the definitions
therein of certain terms which are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture (or of the
Form of LYON which is a part thereof) are referred to, such provisions or
defined terms are incorporated herein by reference. References herein are to
sections in the Indenture and paragraphs in the Form of LYON.
GENERAL
The LYONs are unsecured, subordinated obligations of the Company limited to
$540,261,000 aggregate principal amount at maturity and will mature on March
25, 2011. The principal amount at maturity of each LYON is $l,000 (except as
may be adjusted upon conversion of the LYONs to semiannual coupon notes
following a Tax Event) and will be payable at the office of the Paying Agent,
which initially will be the Trustee, or an office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York.
(Sections 2.03, 2.04 and 4.05 and Form of LYON, paragraph 3)
The LYONs were originally issued at a substantial discount from their
principal amount at maturity. See "Certain United States Federal Income Tax
Considerations-Original Issue Discount." Except as described under "Optional
Conversion to Semiannual Coupon Note upon Tax Event," there will be no
periodic payments of interest. The calculation of the accrual of Original
Issue Discount (the difference between the Issue Price and the principal
amount at maturity of a LYON) in the period during which a LYON remains
outstanding will be on a semiannual bond equivalent basis using a 360-day year
composed of twelve 30-day months; such accrual will commence on the issue date
of the LYONs. (Form of LYON, paragraph 1) In the event of the maturity,
conversion, purchase by the Company at the option of a Holder or redemption of
a LYON, Original Issue Discount and interest, if any, will cease to accrue on
such LYON, under the terms and subject to the conditions of the Indenture.
(Section 2.08) The Company may not reissue a LYON that has matured or been
converted, purchased by the Company at the option of a Holder, redeemed or
otherwise cancelled. (Section 2.10)
Because certain of the operations of the Company are conducted through
wholly-owned subsidiaries, the Company's cash flow and consequent ability to
meet its debt obligations are dependent in part upon the earnings of its
subsidiaries and on dividends and other payments therefrom. Since the LYONs
are solely an obligation of the Company, the Company's subsidiaries are not
obligated or required to pay any amounts due pursuant to the LYONs or to make
funds available therefor in the form of dividends or advances to the Company.
FORM, DENOMINATION AND REGISTRATION
The LYONs were issued in fully registered book-entry form and are
represented by one or more global LYONs without coupons (each, a "Global
LYON") deposited with a custodian for and registered in the name of a nominee
of DTC in New York, New York. Beneficial interests in any such Global LYON
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its direct and indirect participants, and any such
interest may not be exchanged for LYONs in certificated form except in the
limited circumstances described herein. The LYONs offered hereby may be
transferred in minimum denominations of $1,000 and multiples thereof. No
service charge will be made for any registration of transfer or exchange of
LYONs, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Ownership of beneficial interests in a Global LYON is limited to persons who
have accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the
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Global LYONs will be shown on, and the transfer of that ownership will be
effected through, records maintained by DTC (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or Holder of a
Global LYON, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the LYONs represented by such Global LYON for all
purposes under the Indenture and the LYONs. No beneficial owner of an interest
in a Global LYON will be able to transfer that interest except in accordance
with DTC's applicable procedures (in addition to those under the Indenture
referred to herein). If DTC or any successor depository notifies the Company
that it is unwilling or unable to continue as depository for a Global LYON or
ceases to be a "Clearing Agency" registered or in good standing under the
Exchange Act or other applicable statute or regulation and a successor
depository is not appointed by the Company within 90 days, or an Event of
Default has occurred and is continuing, owners of beneficial interests in such
Global LYON will receive physical delivery of LYONs in certificated form and
will be considered to be the owners or Holders of such LYONs under the
Indenture or the LYONs.
Payments on Global LYONs will be made to DTC or its nominee, as the
registered owner thereof. Neither the Company, the Trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global LYONs or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment in
respect of a Global LYON held by it or its nominee, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global LYON as shown on the records
of DTC or its nominee. The Company also expects that payments by participants
to owners of beneficial interests in such Global LYON held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such
payments, however, will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with
DTC rules and will be settled in same-day funds. The laws of some states,
however, require that certain persons take physical delivery of securities in
definitive form.
DTC will take any action permitted to be taken by a Holder of LYONs
(including the presentation of LYONs for exchange as described below) only at
the direction of one or more participants to whose account interests in the
Global LYONs are credited and only in respect of such portion of the aggregate
principal amount of the LYONs as to which such participant or participants has
or have given such direction. However, if there is an Event of Default under
the LYONs, DTC will exchange the Global LYONs for LYONs in certificated form,
which it will distribute to its participants and which will be legended as set
forth under "Notice to Investors."
In case any such LYON shall become mutilated, defaced, destroyed, lost or
stolen, the Company will execute and upon the Company's request the Trustee
will authenticate and deliver a new LYON, of like tenor (including the same
date of issuance) and equal principal amount at maturity, registered in the
same manner, dated the date of its authentication in exchange and substitution
for such LYON (upon surrender and cancellation thereof) or in lieu of and
substitution for such LYON. In case such LYON is destroyed, lost or stolen,
the applicant for a substituted LYON shall furnish to the Company and the
Trustee such security or indemnity as may be required by them to hold each of
them harmless, and, in every case of destruction, loss or theft of such LYON,
the applicant shall also furnish to the Company satisfactory evidence of the
destruction, loss or theft of such LYON and of the ownership thereof. Upon the
issuance of any substituted LYON, the Company may require the payment by the
registered Holder thereof of a sum sufficient to cover fees and expenses
connected therewith.
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SUBORDINATION OF LYONS
Indebtedness evidenced by the LYONs is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full of all existing and
future Senior Indebtedness (as defined below). (Section 10.1) No payment of
the Principal Amount at Maturity, Issue Price, accrued Original Issue
Discount, Redemption Price, Change in Control Purchase Price or interest, if
any, with respect to any LYONs may be made by the Company, nor may the Company
pay cash with respect to the Purchase Price of any LYON (other than for
fractional shares) or acquire any LYONs for cash or property except as set
forth in the Indenture if (i) any payment default on any Senior Indebtedness
has occurred and is continuing beyond any applicable grace period or (ii) any
default (other than a payment default) with respect to Senior Indebtedness
occurs and is continuing that permits the acceleration of the maturity thereof
and such default is either the subject of judicial proceedings or the Company
receives notice of the default. Notwithstanding the foregoing, payments with
respect to the LYONs may resume and the Company may acquire LYONs for cash
when (a) the default with respect to the Senior Indebtedness is cured or
waived or (b) in the case of a default described in (ii) above, 179 or more
days pass after notice of the default is received by the Company, provided
that the terms of the Indenture otherwise permit the payment or acquisition of
the LYONs at that time. If the Company receives a notice of default referred
to in clause (ii) of the preceding sentence, then a similar notice received
within nine months thereafter relating to the same default on the same issue
of Senior Indebtedness shall not be effective to prevent the payment or
acquisition of the LYONs as provided above. (Section 10.04) In addition, no
payment may be made on the LYONs if any LYONs are declared due and payable
prior to their Stated Maturity by reason of the occurrence of an Event of
Default until the earlier of (i) 120 days after the date of such acceleration
or (ii) the payment in full of all Senior Indebtedness, but only if such
payment is then otherwise permitted under the terms of the Indenture. (Section
10.03) Upon any payment or distribution of assets of the Company to creditors
upon any dissolution, winding up, liquidation or reorganization of the
Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other similar proceedings, the holders of all Senior
Indebtedness shall first be entitled to receive payment in full of all amounts
due or to become due thereon, or payment of such amounts shall have been
provided for, before the holders of the LYONs shall be entitled to receive any
payment or distribution with respect to any LYONs. (Section 10.02)
By reason of the subordination described herein, in the event of insolvency,
upon any distribution of the assets of the Company, (i) the Holders of the
LYONs are required to pay over their share of such distribution to the trustee
in bankruptcy, receiver or other person distributing the assets of the Company
for application to the payment of all Senior Indebtedness remaining unpaid, to
the extent necessary to pay all holders of Senior Indebtedness in full and
(ii) unsecured creditors of the Company who are not Holders of LYONs or
holders of Senior Indebtedness of the Company may recover less, ratably, than
holders of Senior Indebtedness of the Company and may recover more, ratably,
than the Holders of LYONs. (Section 10.02)
The term "Senior Indebtedness" of the Company means, without duplication,
the principal, premium (if any) and unpaid interest on all present and future
(i) indebtedness of the Company for borrowed money, (ii) obligations of the
Company evidenced by bonds, debentures, notes or similar instruments, (iii)
indebtedness incurred, assumed or guaranteed by the Company in connection with
the acquisition by it or a Subsidiary of any business, properties or assets
(except purchase-money indebtedness classified as accounts payable under
generally accepted accounting principles), (iv) obligations of the Company as
lessee under leases required to be capitalized on the balance sheet of the
lessee under generally accepted accounting principles, (v) reimbursement
obligations of the Company in respect of letters of credit relating to
indebtedness or other obligations of the Company that qualify as indebtedness
or obligations of the kind referred to in clauses (i) through (iv) above, and
(vi) obligations of the Company under direct or indirect guaranties in respect
of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (v) above, in each case unless in the instrument creating or
evidencing the indebtedness or obligation or pursuant to which the same is
outstanding it is provided that such indebtedness or obligation is not
superior in right of payment to the LYONs. (Section 1.01)
8
<PAGE>
As of June 14, 1996, there was approximately $1.1 billion of Senior
Indebtedness outstanding. There is no restriction under the Indenture on the
creation of additional indebtedness, including Senior Indebtedness.
The LYONs are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries. Any right of the Company to
participate in any distribution of the assets of any of the Company's
subsidiaries upon the liquidation, reorganization or insolvency of such
subsidiary (and the consequent right of the Holders of the LYONs to
participate in those assets) will be subject to the claims of the creditors
(including trade creditors) of such subsidiary, except to the extent that
claims of the Company itself as a creditor of such subsidiary may be
recognized, in which case the claims of the Company would still be subordinate
to any security interest in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company.
CONVERSION RIGHTS
A Holder of a LYON may convert it into Common Stock at any time before the
close of business on March 25, 2011, provided, however, that if a LYON is
called for redemption, the Holder may convert it at any time before the close
of business on the Redemption Date. A LYON in respect of which a Holder has
delivered a Purchase Notice or a Change in Control Purchase Notice exercising
the option of such Holder to require the Company to purchase such LYON may be
converted only if such notice is withdrawn by a written notice of withdrawal
delivered by the Holder to the Paying Agent prior to the close of business on
the Purchase Date or the Change in Control Purchase Date, as the case may be,
in accordance with the terms of the Indenture. (Sections 3.08, 3.09 and 3.10
and Form of LYON, paragraph 9)
The initial Conversion Rate for the LYONs is 8.760 shares of Common Stock
per $1,000 principal amount at maturity, subject to adjustment upon the
occurrence of certain events described below. (Form of LYON, paragraph 9) See
"Price Range of Common Stock and Dividends." A Holder otherwise entitled to a
fractional share of Common Stock will receive cash equal to the market value
of such fractional share based on the closing Sale Price on the Trading Day
immediately preceding the Conversion Date. (Section 11.03 and Form of LYON,
paragraph 9) A Holder may convert a portion of such Holder's LYONs so long as
such portion is $1,000 principal amount at maturity or an integral multiple
thereof. (Section 11.01 and Form of LYON, paragraph 9)
To convert a LYON, a Holder must (i) complete and manually sign the
conversion notice on the back of the LYON (or complete and manually sign a
facsimile thereof) and deliver such notice to the Conversion Agent (initially
the Trustee) at the office maintained by the Conversion Agent for such
purpose, (ii) surrender the LYON to the Conversion Agent, (iii) if required,
furnish appropriate endorsements and transfer documents, and (iv) if required,
pay all transfer or similar taxes. Pursuant to the Indenture, the date on
which all of the foregoing requirements have been satisfied is the Conversion
Date. (Sections 11.02 and 11.04 and Form of LYON, paragraph 9)
Upon conversion of a LYON, a Holder will not receive any cash payment
representing accrued Original Issue Discount. The Company's delivery to the
Holder of the fixed number of shares of Common Stock into which the LYON is
convertible (together with the cash payment, if any, in lieu of any fractional
shares) will satisfy the Company's obligation to pay the principal amount at
maturity of the LYON, including the accrued Original Issue Discount
attributable to the period from the Issue Date to the Conversion Date. Thus,
the accrued Original Issue Discount will be deemed to be paid in full rather
than cancelled, extinguished or forfeited. The Conversion Rate will not be
adjusted at any time during the term of the LYONs for accrued Original Issue
Discount. A certificate for the number of full shares of Common Stock into
which any LYON is converted (and for cash in lieu of fractional shares) will
be delivered through the Conversion Agent no later than the seventh business
day following the Conversion Date. (Sections 2.08 and 11.02) For a discussion
of the tax treatment of a Holder receiving Common Stock upon conversion, see
"Certain United States Federal Income Tax Consequences--Disposition or
Conversion."
9
<PAGE>
The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other capital stock of the Company;
certain subdivisions, combinations or reclassifications of Common Stock;
distributions to all holders of Common Stock of certain rights, warrants or
options to purchase Common Stock or securities convertible into Common Stock
for a period expiring within 60 days after the record date for such
distribution at a price per share less than the Sale Price at the time; and
distributions to all holders of Common Stock of assets or debt securities of
the Company or rights, warrants or options to purchase securities of the
Company (excluding cash dividends or other cash distributions from
consolidated current net earnings or earned surplus or dividends payable in
Common Stock but including Extraordinary Cash Dividends). However, no
adjustment need be made if Holders may participate in the transactions on a
basis and with notice that the Board of Directors of the Company determines to
be fair and appropriate, or in certain other cases. In cases where the fair
market value of the portion of assets, debt securities or rights, warrants or
options to purchase securities of the Company applicable to one share of
Common Stock distributed to stockholders exceeds the Average Sale Price per
share of Common Stock, or such Average Sale Price exceeds such fair market
value of such portion of assets, debt securities or rights, warrants or
options so distributed by less than $1.00, rather than being entitled to an
adjustment in the Conversion Rate, the Holder of a LYON upon conversion
thereof will be entitled to receive, in addition to the shares of Common Stock
into which such LYON is convertible, the kind and amounts of assets, debt
securities or rights, options or warrants comprising the distribution that
such Holder would have received if such Holder had converted such LYON
immediately prior to the record date for determining the shareholders entitled
to receive the distribution. The Indenture permits the Company to increase the
Conversion Rate from time to time (Sections 11.06, 11.07, 11.08, 11.10, 11.12
and 11.14 and Form of LYON, paragraph 9)
If the Company is party to a consolidation, merger or binding share exchange
or a transfer of all or substantially all of its assets which is otherwise
permitted under the terms of the Indenture, the right to convert a LYON into
Common Stock may be changed into a right to convert it into the kind and
amount of securities, cash or other assets which the Holder would have
received if the Holder had converted such Holder's LYONs immediately prior to
the transaction. (Section 11.14)
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment of the Conversion Rate (or in which Holders otherwise
participate) or in the event the Conversion Rate is increased at the
discretion of the Company, the Holders of the LYONs may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend. See "Certain United States Federal
Income Tax Consequences--Constructive Dividend."
In the event the Company exercises its option to have interest in lieu of
original issue discount accrue on the LYON following a Tax Event, the Holder
will be entitled on conversion to receive the same number of shares of Common
Stock such Holder would have received if the Company had not exercised such
option. If the Company exercises such option, LYONs surrendered for conversion
during the period from the close of business on any Regular Record Date (as
defined herein) next preceding any Interest Payment Date (as defined herein)
to the opening of business of such Interest Payment Date (except LYONs to be
redeemed on a date within such period) must be accompanied by payment of an
amount equal to the interest thereon that the registered Holder is to receive.
Except where LYONs surrendered for conversion must be accompanied by payment
as described above, no interest on converted LYONs will be payable by the
Company on any Interest Payment Date subsequent to the date of conversion. See
"--Optional Conversion to Semiannual Coupon Note upon Tax Event."
REDEMPTION OF LYONS AT THE OPTION OF THE COMPANY
No sinking fund is provided for the LYONs. Prior to March 25, 1999, the
LYONs will not be redeemable at the option of the Company. Thereafter, the
Company may redeem the LYONs for cash as a whole at any time, or from time to
time in part, upon not less than 30 days' nor more than 60 days' notice of
redemption given by mail to Holders of LYONs. Any such redemption must be in
multiples of $1,000 principal amount at maturity. (Sections 3.01, 3.02 and
3.03 and Form of LYON, paragraphs 5 and 7)
10
<PAGE>
The table below shows Redemption Prices of a LYON per $1,000 principal
amount at maturity on March 25, 1999, at each March 25 thereafter prior to
maturity, and at maturity on March 25, 2011, which prices reflect the accrued
Original Issue Discount calculated to each such date. The Redemption Price of
a LYON redeemed between such dates would include an additional amount
reflecting the additional Original Issue Discount accrued since the next
preceding date in the table to, but excluding, the Redemption Date. (Form of
LYON, paragraph 5)
<TABLE>
<CAPTION>
(2) (3)
(1) ACCRUED ORIGINAL REDEMPTION
LYON ISSUE DISCOUNT PRICE
REDEMPTION DATE ISSUE PRICE AT 4.25% (1) + (2)
--------------- ----------- ---------------- ----------
<S> <C> <C> <C>
March 25, 1999.......................... $532.15 $71.56 $603.71
March 25, 2000.......................... 532.15 97.49 629.64
March 25, 2001.......................... 532.15 124.53 656.68
March 25, 2002.......................... 532.15 152.74 684.89
March 25, 2003.......................... 532.15 182.15 714.30
March 25, 2004.......................... 532.15 212.83 744.98
March 25, 2005.......................... 532.15 244.83 776.98
March 25, 2006.......................... 532.15 278.21 810.36
March 25, 2007.......................... 532.15 313.01 845.16
March 25, 2008.......................... 532.15 349.31 881.46
March 25, 2009.......................... 532.15 387.17 919.32
March 25, 2010.......................... 532.15 426.66 958.81
At Stated Maturity...................... 532.15 467.85 1,000.00
</TABLE>
If converted to semiannual coupon notes following the occurrence of a Tax
Event, the LYONs will be redeemable at the Restated Principal Amount (as
defined herein) plus accrued and unpaid interest from the date of such
conversion to, but excluding, the Redemption Date. See "--Optional Conversion
to Semiannual Coupon Note upon Tax Event."
If fewer than all of the LYONs are to be redeemed, the Trustee shall select
the LYONs to be redeemed in principal amounts at maturity of $1,000 or
integral multiples thereof by lot, pro rata or by another method the Trustee
considers fair and appropriate. If a portion of a Holder's LYONs is selected
for partial redemption and such Holder converts a portion of such LYONs, such
converted portion shall be deemed, solely for purposes of determining the
aggregate Principal Amount of LYONs to be redeemed by the Company, to be of
the portion selected for redemption. (Section 3.02)
PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
On March 25, 1999 and March 25, 2006 (each, a "Purchase Date"), the Company
will become obligated to purchase, at the option of the Holder thereof, any
outstanding LYON for which a written notice (a "Purchase Notice") has been
delivered by the Holder to the Paying Agent or an office or agency maintained
by the Company for such purpose in the Borough of Manhattan, The City of New
York, at any time from the opening of business on the date that is 20 business
days preceding such Purchase Date until the close of business on such Purchase
Date and for which such Purchase Notice has not been withdrawn. Subject to
certain additional conditions set forth in part in the following paragraphs.
(Section 3.08 and Form of LYON, paragraph 6)
The table below shows the Purchase Prices of LYON as of the specified
Purchase Dates:
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
------------- --------------
<S> <C>
March 25, 1999 $603.71
March 25, 2006 $810.36
</TABLE>
If prior to a Purchase Date the LYONs have been converted to semiannual
coupon notes following the occurrence of a Tax Event, the Purchase Price will
be equal to the Restated Principal Amount plus accrued and unpaid interest
from the date of such conversion to, but excluding, the Purchase Date.
11
<PAGE>
The Company, at its option, may elect to pay such Purchase Price in cash or
Common Stock, or any combination thereof. (Section 3.08 and Form of LYON,
paragraph 6) For a discussion of the tax treatment of such a transaction, see
"Certain United States Federal Income Tax Consequences--Disposition or
Conversion."
The Company will give notice (the "Company Notice") not less than 20
business days prior to each Purchase Date (the "Company Notice Date") to all
Holders at their addresses shown in the register of the Registrar (and to
beneficial owners as required by applicable law) stating, among other things,
(i) whether the Company will pay the Purchase Price of the LYONs in cash or
Common Stock, or any combination thereof, and (ii) the procedures that Holders
must follow to require the Company to purchase LYONs from such Holders.
(Section 3.08)
The Purchase Notice given by any Holder requiring the Company to purchase
LYONs shall state (i) the certificate numbers of the LYONs to be delivered by
such Holder for purchase by the Company; (ii) the portion of the principal
amount at maturity of LYONs to be purchased, which portion must be $1,000 or
an integral multiple thereof; (iii) that such LYONs are to be purchased by the
Company pursuant to the applicable provisions of the LYONs; and (iv) if the
Company elects, pursuant to the Company Notice, to pay a specified percentage
of the Purchase Price in Common Stock but such specified percentage is
ultimately to be paid in cash because any of the conditions to payment of such
specified percentage of the Purchase Price in Common Stock contained in the
Indenture is not satisfied prior to the close of business on the Purchase
Date, as described below, that such Holder elects (a) to withdraw such
Purchase Notice as to some or all of the LYONs to which it relates (stating
the principal amount at maturity and certificate numbers of the LYONs as to
which such withdrawal shall relate) or (b) to receive cash in respect of the
Purchase Price of all LYONs subject to such Purchase Notice. If the Holder
fails to indicate such Holder's choice with respect to the election described
in clause (iv) above in the Purchase Notice, such Holder shall be deemed to
have elected to receive cash for the specified percentage that was to have
been payable in Common Stock. (Section 3.08) See "Certain United States
Federal Income Tax Consequences--Disposition or Conversion."
Any Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the Paying Agent prior to the close of business on the
Purchase Date. The notice of withdrawal shall state the principal amount at
maturity and the certificate numbers of the LYONs as to which the withdrawal
notice relates and the principal amount at maturity, if any, which remains
subject to the Purchase Notice. (Section 3.10)
If the Company elects to pay the Purchase Price, in whole or in part, in
shares of Common Stock, the number of shares to be delivered in respect of the
specified percentage of the Purchase Price to be paid in Common Stock shall be
equal to the dollar amount of such specified percentage of the Purchase Price
divided by the Market Price (as defined below) of a share of Common Stock.
However, no fractional shares of Common Stock will be delivered upon any
purchase by the Company of LYONs in payment, in whole or in part, of the
Purchase Price. Instead, the Company will pay cash based on the Market Price
for all fractional shares of Common Stock. (Section 3.08) Each Holder whose
LYONs are purchased at the option of such Holder as of the Purchase Date shall
receive the same percentage of cash or Common Stock in payment of the Purchase
Price for such LYONs, except as described above with regard to the payment of
cash in lieu of fractional shares of Common Stock. See "Certain United States
Federal Income Tax Considerations--Disposition or Conversion."
The "Market Price" means the average of the Sale Price of the Common Stock
for the five Trading Day period ending on the third Trading Day prior to the
applicable Purchase Date, appropriately adjusted to take into account the
actual occurrence, during the seven Trading Days preceding such Purchase Date,
of certain events that would result in an adjustment of the Conversion Rate
with respect to the Common Stock. (Section 3.08) The "Sale Price" on any
Trading Day means the closing per share sale price for the Common Stock (or,
if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case the average of the average bid and average
ask prices) on such Trading Day as reported in the composite transactions for
the principal United States securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a United States national or
regional securities exchange, as reported by the National Association of
12
<PAGE>
Securities Dealers Automated Quotation System. A "Trading Day" means each day
on which the securities exchange or quotation system which is used to
determine the Sale Price is open for trading or quotation. (Section 1.01)
Because the Market Price of the Common Stock is determined prior to the
Purchase Date, Holders of LYONs bear the market risk with respect to the value
of the Common Stock to be received from the date such Market Price is
determined to the Purchase Date. The Company may pay the Purchase Price, in
whole or in part, in Common Stock only if the information necessary to
calculate the Market Price is reported in The Wall Street Journal or another
daily newspaper of national circulation. (Section 3.08)
Upon determination of the actual number of shares of Common Stock issuable
in accordance with the foregoing provisions, the Company will publish such
determination in The Wall Street Journal or another daily newspaper of
national circulation. (Section 3.08)
The Company's right to purchase LYONs, in whole or in part, with shares of
Common Stock is subject to the Company's satisfying various conditions,
including the registration of the Common Stock under the Securities Act and
the Exchange Act, unless there exists an applicable exemption from
registration thereunder. If such conditions are not satisfied prior to the
close of business on the Purchase Date, the Company will pay the Purchase
Price of the LYONs in cash. (Section 3.08) The Company will comply with the
provisions of Rule 13e-4 and any other tender offer rules under the Exchange
Act which may then be applicable and will file Schedule 13E-4 or any other
schedule required thereunder in connection with any offer by the Company to
purchase LYONs at the option of the Holders thereof on a Purchase Date.
(Section 3.13) The Company may not change the form of consideration (or
components or percentages of components thereof) to be paid once the Company
has given its Company Notice to Holders of LYONs except as described in the
second sentence of this paragraph. (Section 3.08)
Payment of the Purchase Price for a LYON for which a Purchase Notice has
been delivered and not withdrawn is conditioned upon delivery of such LYON
(together with necessary endorsements) to the Paying Agent or an office or
agency maintained by the Company for such purpose in the Borough of Manhattan,
The City of New York, at any time (whether prior to, on or after the Purchase
Date) after delivery of such Purchase Notice. (Section 3.08) Payment of the
Purchase Price for such LYON will be made promptly following the later of the
business day following the Purchase Date and the time of delivery of such
LYON. (Section 3.10) If the Paying Agent holds, in accordance with the terms
of the Indenture, money or securities sufficient to pay the Purchase Price of
such LYON on the business day following the Purchase Date, then, on and after
the Purchase Date, such LYON will cease to be outstanding and Original Issue
Discount on such LYON will cease to accrue and will be deemed paid, whether or
not such LYON is delivered to the Paying Agent, and all other rights of the
Holder shall terminate (other than the right to receive the Purchase Price
upon delivery of such LYON). (Section 2.08)
The Company's ability to purchase LYONs with cash may be limited by the
terms of its then-existing borrowing agreements. No LYONs may be purchased
pursuant to the provisions described above if there has occurred and is
continuing an Event of Default described under "Events of Default; Notice and
Waiver" below (other than a default in the payment of the Purchase Price with
respect to such LYONs). (Section 3.10)
CHANGE IN CONTROL PERMITS PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
In the event of any Change in Control (as defined below) of the Company
occurring on or prior to March 25, 1999, each Holder of LYONs will have the
right, at the Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to purchase all or any part (provided that
the principal amount at maturity must be $1,000 or an integral multiple
thereof) of the Holder's LYONs on the date that is 35 business days after the
occurrence of such Change in Control (the "Change in Control Purchase Date")
at a cash price equal to the Issue Price plus accrued Original Issue Discount
to the Change in Control Purchase Date (the "Change in Control Purchase
Price"). (Section 3.09 and Form of LYON, paragraph 6). If prior to a Purchase
Date the LYONs have been converted to semiannual coupon notes following the
occurrence of a Tax Event, the Company will be required to purchase the LYONs
at a cash price equal to the Restated Principal Amount plus
13
<PAGE>
accrued and unpaid interest from the date of such conversion to, but
excluding, the Change in Control Purchase Date. Holders will not have any
right to require the Company to purchase LYONs in the event of any Change in
Control of the Company occurring after March 25, 1999.
Within 15 business days after the Change in Control, the Company shall mail
to the Trustee and to each Holder (and to beneficial owners as required by
applicable law) a notice regarding the Change in Control, which notice shall
state, among other things: (i) the date of such Change in Control and,
briefly, the events causing such Change in Control, (ii) the date by which the
Change in Control Purchase Notice (as defined below) must be given, (iii) the
Change in Control Purchase Date, (iv) the Change in Control Purchase Price,
(v) the name and address of the Paying Agent and the Conversion Agent, (vi)
the Conversion Rate and any adjustments thereto, (vii) that LYONs with respect
to which a Change in Control Purchase Notice is given by the Holder may be
converted into shares of Common Stock only if the Change in Control Purchase
Notice has been withdrawn in accordance with the terms of the Indenture,
(viii) the procedures that Holders must follow to exercise these rights, (ix)
the procedures for withdrawing a Change in Control Purchase Notice, (x) that
Holders who want to convert LYONs must satisfy the requirements set forth in
paragraph 9 of the LYONs and (xi) briefly, the conversion rights of Holders of
LYONs. The Company will cause a copy of such notice to be published in The
Wall Street Journal or another daily newspaper of national circulation.
(Section 3.09)
To exercise the purchase right, the Holder must deliver written notice of
the exercise of such right (a "Change in Control Purchase Notice") to the
Paying Agent or an office or agency maintained by the Company for such purpose
in the Borough of Manhattan, The City of New York, prior to the close of
business on the Change in Control Purchase Date. The Change in Control
Purchase Notice shall state (i) the certificate numbers of the LYONs to be
delivered by the Holder thereof for purchase by the Company; (ii) the portion
of the principal amount at maturity of LYONs to be purchased, which portion
must be $1,000 or an integral multiple thereof; and (iii) that such LYONs are
to be purchased by the Company pursuant to the applicable provisions of the
LYONs. (Section 3.09)
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent prior to the close
of business on the Change in Control Purchase Date. The notice of withdrawal
shall state the principal amount at maturity and the certificate numbers of
the LYONs as to which the withdrawal notice relates and the principal amount
at maturity, if any, which remains subject to a Change in Control Purchase
Notice. (Section 3.10)
Payment of the Change in Control Purchase Price for a LYON for which a
Change in Control Purchase Notice has been delivered and not withdrawn is
conditioned upon delivery of such LYON (together with necessary endorsements)
to the Paying Agent or an office or agency maintained by the Company for such
purpose in the Borough of Manhattan, The City of New York, at any time
(whether prior to, on or after the Change in Control Purchase Date) after the
delivery of such Change in Control Purchase Notice. (Section 3.09) Payment of
the Change in Control Purchase Price for such LYON will be made promptly
following the later of the business day following the Change in Control
Purchase Date and the time of delivery of such LYON. (Section 3.10). If the
Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Change in Control Purchase Price of such LYON on the
business day following the Change in Control Purchase Date, then, on and after
the Change in Control Purchase Date, such LYON will cease to be outstanding
and Original Issue Discount on such LYON will cease to accrue and will be
deemed paid, whether or not such LYON is delivered to the Paying Agent, and
all other rights of the Holder shall terminate (other than the right to
receive the Change in Control Purchase Price upon delivery of such LYON).
(Section 2.08)
Under the Indenture, a "Change in Control" of the Company is deemed to have
occurred at such time as (i) any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than the
Company, any Subsidiary of the Company, or any employee benefit plan of either
the Company or any Subsidiary of the Company, files a Schedule 13D or 14D-I
under the Exchange Act (or any successor schedule, form or report) disclosing
that such person has become the beneficial owner of 50% or more of the Common
14
<PAGE>
Stock or other Capital Stock of the Company into which such Common Stock is
reclassified or changed, with certain exceptions, or (ii) there shall be
consummated any consolidation or merger of the Company (a) in which the
Company is not the continuing or surviving corporation or (b) pursuant to
which the Common Stock would be converted into cash, securities or other
property, in each case, other than a consolidation or merger of the Company in
which the holders of Common Stock immediately prior to the consolidation or
merger have, directly or indirectly, at least a majority of Common Stock of
the continuing or surviving corporation immediately after the consolidation or
merger. The Indenture does not permit the Board of Directors to waive the
Company's obligation to purchase LYONs at the option of a Holder in the event
of a Change in Control of the Company. (Section 3.09)
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and
any other tender offer rules under the Exchange Act which may then be
applicable, and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase LYONs at
the option of the Holders thereof upon a Change in Control. (Section 3.13) The
Change in Control purchase feature of the LYONs may in certain circumstances
make more difficult or discourage a takeover of the Company and, thus, the
removal of incumbent management. The Change in Control purchase feature,
however, is not the result of management's knowledge of any specific effort to
accumulate shares of Common Stock or to obtain control of the Company by means
of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change
in Control purchase feature is a standard term contained in other LYONs
offerings that have been marketed by the Underwriter, and the terms of such
feature result from negotiations between the Company and the Underwriter.
If a Change in Control were to occur, there can be no assurance that the
Company would have funds sufficient to pay the Change in Control Purchase
Price for all of the LYONs that might be delivered by Holders seeking to
exercise the purchase right since the Company might also be required to prepay
certain Senior Indebtedness having financial covenants with change of control
provisions in favor of the holders thereof. In addition, substantially all of
the Senior Indebtedness of the Company has cross-default provisions that could
be triggered by a default under the change of control provisions in certain
Senior Indebtedness, thereby possibly accelerating the maturity of virtually
all such Senior Indebtedness. In such case, the Holders of the LYONs would be
subordinated to the prior claims of the holders of such Senior Indebtedness.
In addition, the Company's ability to purchase LYONs with cash may be limited
by the terms of its then-existing borrowing agreements. No LYONs may be
purchased pursuant to the provisions described above if there has occurred and
is continuing an Event of Default described under "Events of Default; Notice
and Waiver" below (other than a default in the payment of the Change in
Control Purchase Price with respect to such LYONs). (Section 3.10)
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may consolidate with or merge into, or transfer or lease its
assets substantially as an entirety to any corporation organized under the
laws of any domestic jurisdiction, provided that (i) the successor corporation
assumes the Company's obligations on the LYONs and under the Indenture and
(ii) after giving effect to the transaction no Event of Default, and no event
which, after notice or lapse of time would become an Event of Default, shall
have occurred and be continuing. (Section 5.01.) Certain of the foregoing
transactions, if they occur on or prior to March 25, 1999, could constitute a
Change in Control of the Company permitting each Holder to require the Company
to purchase the LYONs of such Holder as described above. (Section 3.09)
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTE UPON TAX EVENT
From and after the date (the "Tax Event Date") of the occurrence of a Tax
Event (as defined below), the Company shall have the option to elect to have
interest in lieu of future original issue discount accrue at 4.25% per annum
on a principal amount per LYON (the "Restated Principal Amount") equal to the
Issue Price plus Original Issue Discount accrued to the date immediately prior
to the Tax Event Date or the date on which the Company exercises the option
described herein, whichever is later (such date hereinafter referred to as the
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"Option Exercise Date"). Such interest shall accrue from the Option Exercise
Date and shall be payable semiannually on March 25 and September 25 of each
year (each an "Interest Payment Date") to holders of record at the close of
business on March 10 or September 10 (each a "Regular Record Date")
immediately preceding such Interest Payment Date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months and will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from the Option Exercise Date.
A "Tax Event" means that the Company shall have received an opinion from
independent tax counsel experienced in such matters (a "Modification Tax
Opinion") to the effect that, on or after March 19, 1996, as a result of (a)
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority, in each
case which amendment or change is enacted, promulgated, issued or announced or
which interpretation is issued or announced or which action is taken, on or
after March 19, 1996, there is more than an insubstantial risk that interest
(including original issue discount) payable on the LYONs either (i) would not
be deductible on a current accrual basis or (ii) would not be deductible under
any other method, in either case in whole or in part, by the Company (by
reason of deferral, disallowance, or otherwise) for United States Federal
income tax purposes.
On December 7, 1995, the U.S. Treasury Department proposed a series of tax
law changes that would, among other things, prevent corporations from
deducting interest (including original issue discount) on debt instruments
convertible into equity of the issuer or a related party until the taxable
year in which such interest is paid in cash or other property (other than
obligations or equity of the issuer or a related party or cash or other
property the amount of which is determined by reference to the value of equity
of the issuer or a related party). This proposal, if enacted and made
applicable to the LYONs, would prevent the Company from deducting interest
(including original issue discount) payable on the LYONs on a current accrual
basis for United States Federal income tax purposes and could cause some or
all of the interest (including original issue discount) payable on the LYONs
to fail to be deductible by the Company under any other method for United
States Federal income tax purposes. As originally proposed and subsequently
modified, the December 7, 1995 proposed tax law changes would apply, subject
to certain transitional relief provisions not applicable to the LYONs, to debt
instruments issued on or after December 7, 1995. In addition, on March 19,
1996, the U.S. Treasury Department reproposed the December 7, 1995 proposed
tax law changes in substantially the same form as originally proposed, along
with certain additional tax proposals not contained in the December 7, 1995
proposal but which would not apply to the LYONs, as part of its 1997 Budget
proposals. Thus, if ultimately adopted in their current form, both the
December 7, 1995 and the March 19, 1996 proposed tax law changes would apply
to the LYONs. It should also be noted that on March 29, 1996, the chairmen of
the Senate Finance Committee and the House Ways and Means Committee issued a
joint statement to the effect that they intend the effective date of any of
the December 7, 1995 and the March 19, 1996 proposed tax law changes that may
be adopted by their respective committees to be no earlier than the date of
appropriate Congressional action, in which case, these proposed tax law
changes would not apply to the LYONs. The Company cannot predict whether or
not these proposed tax law changes will ultimately become law or what the
effective date of any such changes would be. If legislation is enacted
limiting, in whole or in part, the ability of the Company to either (i) deduct
the interest (including original issue discount) payable on the LYONs on a
current accrual basis or (ii) deduct the interest (including original issue
discount) payable on the LYONs under any other method for United States
Federal income tax purposes, such enactment would result in a Tax Event and
the terms of the LYONs would be subject to modification at the option of the
Company as described above. The December 7, 1995 and the March 19, 1996
proposed tax law changes themselves would not alter the U.S. Federal income
tax consequences of the purchase, ownership and disposition of the LYONs.
However, the modification of the terms of LYONs by the Company upon a Tax
Event as described above could possibly alter the timing of income recognition
by holders of the LYONs with respect to the semiannual payments of interest
due on the LYONs after the Option Exercise Date. See "Certain United States
Federal Income Tax Considerations."
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EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein shall
have happened and be continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount at maturity of the LYONs then
outstanding may declare the Issue Price plus Original Issue Discount accrued
to the date of default (in the case of an Event of Default specified in (i) or
(ii) of the following paragraph) or to the date of such declaration (in the
case of an Event of Default specified in (iii) or (iv) of the following
paragraph) on all the LYONs to be immediately due and payable. In the case of
certain events of bankruptcy or insolvency, the Issue Price of the LYONs plus
the Original Issue Discount accrued thereon (or if the LYONs have been
converted to semiannual coupon notes following a Tax Event, the Restated
Principal Amount plus accrued and unpaid interest) to the occurrence of such
event shall automatically become and be immediately due and payable. Upon any
such acceleration, the subordination provisions of the Indenture preclude any
payment being made to Holders of LYONs until the earlier of (i) 120 days or
more after the date of such acceleration and (ii) the payment in full of all
Senior Indebtedness, but only if such payment is then otherwise permitted
under the terms of the Indenture. See "Subordination of LYONs" above. Under
certain circumstances, the Holders of a majority in aggregate principal amount
at maturity of the outstanding LYONs may rescind any such acceleration with
respect to the LYONs and its consequences. (Sections 6.02 and 10.03) Interest
shall accrue and be payable on demand upon a default in the payment of
principal amount at maturity, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or shares
of Common Stock (or cash in lieu of fractional shares) to be delivered on
conversion of LYONs, in each case to the extent that the payment of such
interest shall be legally enforceable. (Section 6.01 and Form of LYON,
paragraph 1)
Under the Indenture, Events of Default include: (i) default in payment of
the principal amount at maturity, Issue Price, accrued Original Issue
Discount, interest upon conversion to a semiannual coupon note following a Tax
Event (if such default in payment of interest shall continue for 30 days),
Redemption Price, Purchase Price or Change in Control Purchase Price with
respect to any LYON, when the same becomes due and payable (whether or not
such payment is prohibited by the provisions of the Indenture); (ii) failure
by the Company to deliver shares of Common Stock (or cash in lieu of
fractional shares) when such Common Stock (or cash in lieu of fractional
shares) is required to be delivered following conversion of a LYON and
continuance of such default for 10 days; (iii) failure by the Company to
comply with any of its other agreements in the LYONs or the Indenture upon the
receipt by the Company of notice of such default from the Trustee or from
Holders of not less than 25% in aggregate principal amount at maturity of the
LYONs then outstanding and the Company's failure to cure such default within
60 days after receipt by the Company of such notice; (iv) default (A) in the
payment of any principal on any debt for borrowed money of the Company or any
Restricted Subsidiary of the Company (excluding any non-recourse debt), in an
aggregate principal amount in excess of the greater of (1) $75 million or (2)
4% of Consolidated Net Assets, when due at its final maturity after giving
effect to any applicable grace period and the holder thereof shall have taken
affirmative action to enforce the payment thereof, or (B) in the performance
of any term or provision of any debt for borrowed money of the Company or any
Restricted Subsidiary of the Company (excluding any non-recourse debt) in an
aggregate principal amount in excess of the greater of (1) $75 million or (2)
4% of Consolidated Net Assets that results in such debt becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable, unless, in the case of either clause (A) or (B) above, (x)
such acceleration or action to enforce payment, as the case may be, has been
rescinded or annulled, (y) such debt has been discharged or (z) a sum
sufficient to discharge in full such debt has been deposited in trust by or on
behalf of the Company, in each case, within a period of 10 days after there
has been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Debt Securities of such series, a written notice
specifying such default or defaults and stating that such notice is a "Notice
of Default" hereunder; or (v) certain events of bankruptcy or insolvency.
(Section 6.01)
"Capitalized Lease Obligations" of any person means the obligations of such
person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined
in accordance with GAAP.
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"Consolidated Net Assets" means the total amount of assets of the Company
and its Subsidiaries (less applicable depreciation, amortization and other
valuation reserves), after deducting therefrom all current liabilities of the
Company and its Subsidiaries (other than intercompany liabilities and the
current portion of long-term debt and Capitalized Lease Obligations), all as
set forth on the latest consolidated balance sheet of the Company prepared in
accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United States
as in effect on the date hereof.
"Principal Property" means (i) a parcel of improved or unimproved real
estate or other physical facility or depreciable asset of the Company or a
Subsidiary, the net book value of which on the date of determination exceeds
2% of Consolidated Net Assets and (ii) any group of parcels of real estate,
other physical facilities, and/or depreciable assets of the Company and/or its
Subsidiaries, the net book value of which, when sold in one or a series of
related Sale and Lease-Back Transactions or securing debt issued in respect of
such Principal Properties, on the date of determination exceeds 2% of the
Consolidated Net Assets. For purposes of the foregoing, "Related Sale and
Lease-Back Transactions" refers to any two or more such contemporaneous
transactions which are on substantially similar terms with substantially the
same parties.
"Restricted Subsidiary" means any Subsidiary organized and existing under
the laws of the United States of America and the principal business of which
is carried on within the United States of America (x) which owns or is a
lessee pursuant to a capital lease of any property of the type described in
clause (i) of the definition of Principal Property or (y) in which the
investment of the Company and all its Subsidiaries exceeds 5% of Consolidated
Net Assets as of the date of such determination other than, in the case of
either clause (x) or (y), (i) Subsidiaries of which the principal business is
the Company's timeshare or senior living services businesses, (ii) each
Subsidiary the major part of whose business consists of finance, banking,
credit, leasing, insurance, financial services or other similar operations, or
any combination thereof and, (iii) each Subsidiary formed or acquired after
the date hereof for the purpose of developing new assets or acquiring the
business or assets of another person and which does not acquire all or any
substantial part of the business or assets of the Company or any Restricted
Subsidiary.
"Sale and Lease-Back Transactions" means any arrangement with any lessor
(other than the Company or a Restricted Subsidiary), providing for the leasing
to the Company or a Restricted Subsidiary for a period of more than three
years (including renewals at the option of the lessee) of any Principal
Property that has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such lessor or to any other person, to which funds
have been or are to be advanced by such lessor or other person on the security
of the leased property.
The Trustee shall, within 90 days after the occurrence of any default, mail
to all Holders of the LYONs notice of all defaults of which the Trustee shall
be aware, unless such defaults shall have been cured or waived before the
giving of such notice; provided, that the Trustee may withhold such notice as
to any default other than a payment default, if it determines in good faith
that withholding the notice is in the interests of the Holders. (Section 6.12)
The Holders of a majority in aggregate principal amount at maturity of the
outstanding LYONs may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other
limitations. (Section 6.05) The Trustee may refuse to perform any duty or
exercise any right or power or extend or risk its own funds or otherwise incur
any financial liability unless it receives indemnity satisfactory to it
against any loss, liability or expense. (Section 7.01) No Holder of any LYON
will have any right to pursue any remedy with respect to the Indenture or the
LYONs, unless (i) such Holder shall have previously given the Trustee written
notice of a continuing Event of Default; (ii) the Holders of at least 25% in
aggregate principal amount at maturity of the outstanding LYONs shall have
made a written request to the Trustee to pursue such remedy; (iii) such Holder
or Holders shall have offered to the Trustee reasonable security or indemnity
against any loss, liability or expense satisfactory to it; (iv) the Trustee
shall have failed to
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comply with the request within 60 days after receipt of such notice, request
and offer of security or indemnity; and (v) the Holders of a majority in
aggregate principal amount at maturity of the outstanding LYONs shall not have
given the Trustee a direction inconsistent with such request within 60 days
after receipt of such request. (Section 6.06)
The right of any Holder: (a) to receive payment of the principal amount at
maturity, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price, Change in Control Purchase Price or interest, if any, in
respect of the LYONs held by such Holder on or after the respective due dates
expressed in the LYONs or as of any Redemption Date, (b) to convert such LYONs
or (c) to bring suit for the enforcement of any such payment on or after such
respective dates or the right to convert, shall not be impaired or adversely
affected without such Holder's consent. (Section 6.07)
The Holders of a majority in aggregate principal amount at maturity of LYONs
at the time outstanding may waive any existing default and its consequences
except (i) any default in any payment on the LYONs, (ii) any default with
respect to the conversion rights of the LYONs, or (iii) any default in respect
of certain covenants or provisions in the Indenture which may not be modified
without the consent of the Holder of each LYON as described in "Modification"
below. When a default is waived, it is deemed cured and shall cease to exist,
but no such waiver shall extend to any subsequent or other default or impair
any consequent right. (Section 6.04)
The Company will be required to furnish to the Trustee annually a statement
as to any default by the Company in the performance and observance of its
obligations under the Indenture. In addition, the Company shall file with the
Trustee written notice of the occurrence or any default or Event of Default
within five Business Days of its becoming aware of such default or Event of
Default. (Section 4.03)
MODIFICATION
Modification and amendment of the Indenture or the LYONs may be effected by
the Company and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount at maturity of the LYONs then
outstanding. However, without the consent of each Holder affected thereby, no
amendment may, among other things, (i) reduce the principal amount at
maturity, Issue Price, Purchase Price, Change in Control Purchase Price or
Redemption Price with respect to any LYON, or extend the stated maturity of
any LYON or alter the manner or rate of accrual of Original Issue Discount or
interest, or make any LYON payable in money or securities other than that
stated in the LYON; (ii) make any change to the principal amount at maturity
of LYONs whose Holders must consent to an amendment or any waiver under the
Indenture or modify the Indenture provisions relating to such amendments or
waivers; (iii) make any change that adversely affects the right to convert any
LYON or the right to require the Company to purchase a LYON; (iv) modify the
provisions of the Indenture relating to the subordination of the LYONs in a
manner adverse to the Holders of the LYONs; or (v) impair the right to
institute suit for the enforcement of any payment with respect to, or
conversion of, the LYONs. No change that adversely affects the rights of any
holder of Senior Indebtedness of the Company under the subordination
provisions of the Indenture may be made unless requisite consents to such
change are obtained from holders of Senior Indebtedness pursuant to the terms
of the related Senior Indebtedness instrument. (Section 9.02)
Without the consent of any Holder of LYONs, the Company and the Trustee may
amend the Indenture to (i) cure any ambiguity, defect or inconsistency,
provided, however, that such amendment does not materially adversely affect
the rights of any Holder, (ii) provide for the assumption by a successor to
the Company of the obligations of the Company under the Indenture, (iii)
provide for uncertificated LYONs in addition to certificated LYONs, as long as
such uncertificated LYONs are in registered form for United States federal
income tax purposes, (iv) make any change that does not adversely affect the
rights of any Holder of LYONs, (v) make any change to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended, or (vi) add to
the covenants or obligations of the Company under the Indenture or surrender
any right, power or option conferred by the Indenture on the Company.
(Section 9.01)
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DISCHARGE OF THE INDENTURE
The Company may satisfy and discharge its obligations under the Indenture by
delivering to the Trustee for cancellation all outstanding LYONs or by
depositing with the Trustee, the Paying Agent or the Conversion Agent, if
applicable, after the LYONs have become due and payable, whether at stated
maturity, or any Redemption Date, or any Purchase Date, a Change of Control
Purchase Date, or upon conversion or otherwise, cash or Common Stock (as
applicable under the terms of the Indenture) sufficient to pay all of the
outstanding LYONs and paying all other sums payable under the Indenture by the
Company. (Article 8)
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Company, under
Title 11 of the United States Code, the claim of the Holder of a LYON may be
limited to (i) the Issue Price of the LYON plus that portion of the Original
Issue Discount that is deemed to have accrued from the date of issue to the
commencement of the proceeding or (ii) if the LYONs have been converted to
semiannual coupon notes, the Restated Principal Amount plus accrued but unpaid
interest to such commencement.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York is the Trustee, Registrar, Paying Agent and Conversion
Agent under the Indenture.
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's certificate of
incorporation, as amended (the "Certificate of Incorporation"), and by-laws,
as amended (the "By-Laws"). These statements do not purport to be complete, or
to give full effect to the provisions of statutory or common law, and are
subject to, and are qualified in their entirety by reference to, the terms of
the Certificate of Incorporation and the By-Laws. The Certificate of
Incorporation and the By-Laws are incorporated by reference in the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 1995.
GENERAL
The Certificate of Incorporation authorizes the issuance of a total of
301,000,000 shares of all classes of stock, of which 1,000,000 may be shares
of preferred stock, without par value, and 300,000,000 may be shares of Common
Stock ("Company Common Stock"). At July 12, 1996, 127,956,601 shares of
Company Common Stock were outstanding. The Certificate of Incorporation
provides that the Board of Directors is authorized to provide for the issuance
of shares of preferred stock, from time to time, in one or more series, and to
fix any voting powers, full or limited or none, and the designations,
preferences and relative, participating, optional or other special rights,
applicable to the shares to be included in any such series and any
qualifications, limitations or restrictions thereon. No shares of preferred
stock of the Company are outstanding as of the date hereof. However, 300,000
shares of Series A Junior Participating Preferred Stock of the Company (the
"Junior Preferred Stock") have been authorized and reserved for issuance in
connection with the preferred stock purchase rights (the "Rights") described
in "--Rights and Junior Preferred Stock."
COMMON STOCK
Voting Rights. Each holder of Common Stock is entitled to one vote for each
share registered in his name on the books of the Company on all matters
submitted to a vote of shareholders. Except as otherwise provided by law, the
holders of Common Stock vote as one class. The shares of Common Stock do not
have cumulative voting rights. As a result, subject to the voting rights, if
any, of the holders of any shares of the Company's preferred stock which may
at the time be outstanding, the holders of Common Stock entitled to exercise
more than 50% of the voting rights in an election of directors can elect 100%
of the directors to be elected if they
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choose to do so. In such event, the holders of the remaining Common Stock
voting for the election of directors will not be able to elect any persons to
the Board. The Certificate of Incorporation provides that the Board shall be
classified into three classes, each serving a three year term, with one class
to be elected in each of three consecutive years.
Dividend Rights. Subject to the rights of the holders of any shares of the
Company's preferred stock which may at the time be outstanding, holders of
Common Stock are entitled to such dividends as the Board may declare out of
funds legally available therefor. There are no contractual restrictions at
present that materially limit the Company's ability to pay dividends in the
ordinary course or that the Company believes are likely to limit materially
the future payment of dividends in the ordinary course on shares of Common
Stock, although future restrictions may be contained in agreements that may be
entered into by the Company to obtain credit facilities. Because certain of
the operations of the Company are conducted through wholly-owned subsidiaries,
the Company's cash flow and consequent ability to pay dividends on Common
Stock are dependent in part upon the earnings of such subsidiaries and on
dividends and other payments therefrom.
Liquidation Rights and Other Provisions. Subject to the prior rights of
creditors and the holders of any of the Company preferred stock which may be
outstanding from time to time, the holders of Common Stock are entitled in the
event of liquidation, dissolution or winding up to share pro rata in the
distribution of all remaining assets.
The Common Stock is not liable for any calls or assessments and is not
convertible into any other securities. The Company Certificate provides that
the private property of the shareholders shall not be subject to the payment
of corporate debts. There are no redemption or sinking fund provisions
applicable to the Common Stock, and the Company Certificate provides that
there shall be no preemptive rights.
The transfer agent and registrar for the Common Stock is The First National
Bank of Chicago.
RIGHTS AND JUNIOR PREFERRED STOCK
Each share of Common Stock presently outstanding or issued hereafter until
the Occurrence Date (as defined below) or earlier redemption, exchange or
expiration of the Rights pursuant to the Rights Agreement, dated as of October
8, 1993 as amended (the "Rights Agreement"), between the Company and The Bank
of New York, is or will be accompanied by one Right. The following is a
summary of the terms of the Rights Agreement, which is filed as an exhibit to
the Registration Statement. This summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the
provisions of the Rights Agreement.
Rights. Following the occurrence of certain events (the "Occurrence Date")
and except as described below, each Right will entitle the registered holder
thereof to purchase from the Company on one one-thousandth of a share (a
"Unit") of the Junior Preferred Stock at a price (the "Purchase Price") of
$150 per Unit, subject to adjustment. The Rights are not exercisable until the
Occurrence Date. The Rights will expire on the tenth anniversary of the
adoption of the Rights Agreement, unless exercised in connection with a
transaction of the type described below or unless earlier redeemed by the
Company.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
Initially, ownership of Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate
certificates representing Rights (the "Rights Certificates") will be
distributed. Until the Occurrence Date (or earlier redemption or expiration of
Rights), Rights will be transferable only with Common Stock, and the surrender
or transfer of any certificate of Common Stock will also constitute the
transfer of Rights associated with the Common Stock represented by such
certificate. Rights will separate from Common Stock and an Occurrence Date
will occur upon the earlier of (i) 10 days following the date (a "Stock
Acquisition Date") of a public announcement that a person or group of
affiliates or associated persons (an "Acquiring
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Person") has acquired, or obtained the right to acquire, beneficial ownership
of 20% or more of the outstanding Common Stock or (ii) 10 business days
following the commencement of or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result in the
Acquiring Person becoming the beneficial owner of 30% or more of such
outstanding Common Stock (such date being called the Occurrence Date).
For purposes of the Rights Agreement, a person shall not be deemed to
beneficially own "Exempt Shares" which include (i) shares of Common Stock
acquired by such person in the Distribution and held continuously thereafter,
(ii) shares of Common Stock acquired by such person by gift, bequest and
certain other transfers, which shares were Exempt Shares immediately prior to
such transfer and were held by such person continuously thereafter and (iii)
shares acquired by such person in connection with certain distributions of
Common Stock with respect to Exempt Shares which were held by such person
continuously thereafter.
As soon as practicable following an Occurrence Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of
business on the Occurrence Date. After such time, such separate Rights
Certificates alone will evidence Rights and could trade independently from
Common Stock.
In the event (i) the Company is the surviving corporation in a merger with
an Acquiring Person and the Common Stock is not changed or exchanged, or (ii)
an Acquiring Person becomes the beneficial owner of 30% of more of then
outstanding shares of Common Stock which the Board determines to be fair to
and otherwise in the best interests of the Company and its shareholders), each
holder of a Right will, in lieu of the right to receive one one-thousandth of
a share of Junior Preferred Stock, thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise
price of the Right. For example, at an exercise price of $150 per Right, each
Right not owned by an Acquiring Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its
holder to purchase $300 worth of Common Stock (or other consideration, as
noted above) for $150. Assuming that Common Stock had a per share value of $30
at such time, the holder of each valid Right would be entitled to purchase 10
shares of Common Stock for $150. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in this paragraph, all
Rights that are (or, under certain circumstances specified in the Rights
Agreement, were) beneficially owned by any Acquiring Person will be null and
void. However, Rights are not exercisable following the occurrence of either
of the events set forth above until such time as Rights are no longer
redeemable by the Company as set forth below.
In the event that, at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger
described in the preceding paragraph or a merger which follows an offer
described in the preceding paragraph), or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the exercise price of a Right.
In general, the Board may redeem Rights in whole, but not in part, at any
time until 10 days following the Stock Acquisition Date, at a price of $.01
per Right. After the redemption period has expired, the Company's right of
redemption may be reinstated if an Acquiring Person reduces its beneficial
ownership to 10% or less of the outstanding shares of Common Stock in a
transaction or series of transactions not involving the Company. Immediately
upon the action of the Board ordering redemption of Rights, Rights will
terminate and the only right of the holders of Rights will be to receive the
$.01 per Right redemption price.
The purchase price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable upon exercise of Rights are
subject to adjustment upon the occurrence of certain events with respect to
the Company, including stock dividends, sub-divisions, combinations,
reclassification, rights or warrants offerings of Junior Preferred Stock at
less than the then current market price and certain distributions of
22
<PAGE>
property or evidences of indebtedness of the Company to holders of Junior
Preferred Stock, all as set forth in the Rights Agreement.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board, except pursuant to an offer conditioned on
a substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board since
Rights may be redeemed by the Company as set forth above.
Junior Preferred Stock. In connection with the Rights Agreement, 300,000
shares of Junior Preferred Stock are authorized and reserved for issuance by
the Board. No shares of Junior Preferred Stock are presently outstanding. The
following statements with respect to the Junior Preferred Stock are subject to
the detailed provisions of the Certificate of Incorporation and the
certificate of designation relating to the Junior Preferred Stock (the "Junior
Preferred Stock Certificate of Designation"). These statements do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, the terms of the Certificate of Incorporation and the Junior
Preferred Stock Certificate of Designation.
Subject to the prior payment of cumulative dividends on any class of
preferred stock ranking senior to the Junior Preferred Stock, a holder of
Junior Preferred Stock will be entitled to cumulative dividends out of funds
legally available therefor, when, as and if declared by the Board, at a
quarterly rate per share of Junior Preferred Stock equal to the greater of (a)
$10.00 or (b) 1,000 times (subject to adjustment upon certain dilutive events)
the aggregate per share amount of all cash dividends and 1,000 times (subject
to adjustment upon certain dilutive events) the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions (other than
dividends payable in Common Stock or a subdivision of the outstanding shares
of Common Stock) declared on Common Stock, since the immediately preceding
quarterly dividend payment date for the Junior Preferred Stock (or since the
date of issuance of the Junior Preferred Stock if no such dividend payment
date has occurred).
A holder of Junior Preferred Stock will be entitled to 1,000 votes (subject
to adjustment upon certain dilutive events) per share of Junior Preferred
Stock on all matters submitted to a vote of shareholders of the Company. Such
holders will vote together with the holders of Common Stock as a single class
on all matters submitted to a vote of shareholders of the Company.
In the event of a merger or consolidation of the Company which results in
Common Stock being exchanged or changed for other stock, securities, cash
and/or other property, the shares of Junior Preferred Stock shall similarly be
exchanged or changed in an amount per share equal to 1,000 times (subject to
adjustment upon certain dilutive events) the aggregate amount of stock,
securities, cash and/or other property, as the case may be, into which each
share of Common Stock has been exchanged or changed.
In the event of liquidation, dissolution or winding up of the Company, a
holder of Junior Preferred Stock will be entitled to receive $1,000 per share,
plus accrued and unpaid dividends and distributions thereon, before any
distribution may be made to holders of shares of stock of the Company ranking
junior to Junior Preferred Stock, and the holders of Junior Preferred Stock
are entitled to receive an aggregate amount per share equal to 1,000 times
(subject to adjustment upon certain dilutive events) the aggregate amount to
be distributed per share to holders of Common Stock.
The Junior Preferred Stock is not subject to redemption. The terms of Junior
Preferred Stock will provide that the Company is subject to certain
restrictions with respect to dividends and distributions on and redemptions
and purchases of shares of the Company ranking junior to or on a parity with
Junior Preferred Stock in the event that payments of dividends or other
distributions payable on Junior Preferred Stock are in arrears.
23
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material Federal income tax consequences
of the ownership, disposition and conversion of LYONs. The Federal income tax
consequences to a Holder will depend upon such Holder's own individual
circumstances. This summary does not discuss all of the tax consequences that
may be relevant to certain types of investors subject to special treatment
under the Federal income tax laws (such as individual retirement accounts and
other tax-deferred accounts, life insurance companies, tax-exempt
organizations and foreign persons). This summary also is limited to investors
who hold LYONs as capital assets. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (including
proposed Treasury Regulations) promulgated thereunder, rulings, official
pronouncements and judicial decisions, all as in effect on the date of this
Prospectus and all of which are subject to change or different
interpretations. The statements of law and legal conclusions set forth herein
are based upon the opinion of Brown & Wood, special tax counsel to the
Company. BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED BELOW
DEPEND UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON U.S.
FEDERAL INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT
TO CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), PROSPECTIVE PURCHASERS
OF THE LYONs SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR
TAX CONSEQUENCES TO THEM OF HOLDING LYONs, INCLUDING THE EFFECT OF ANY
APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
The Company has been advised by Brown & Wood that in the opinion of such
counsel the LYONs will be treated as indebtedness for Federal income tax
purposes. The following discussion of tax consequences assumes that the LYONs
will be treated as indebtedness.
ORIGINAL ISSUE DISCOUNT
The LYONs were issued at a substantial discount from their principal amount
at maturity. For Federal income tax purposes, the difference between the
initial offering price to the public at which a substantial amount of LYONs
were sold (the "Issue Price") and the principal amount at maturity of each
LYON constitutes original issue discount ("Original Issue Discount"). Holders
of the LYONs are required to include Original Issue Discount in income
periodically over the term of the LYONs before receipt of the cash or other
property attributable to such income.
A Holder of a LYON generally must include in gross income for Federal income
tax purposes the sum of the daily portions of Original Issue Discount with
respect to the LYON for each day during the taxable year or portion of a
taxable year on which such Holder holds the LYON ("Accrued Original Issue
Discount"). The daily portion is determined by allocating to each day of the
accrual period a pro rata portion of an amount equal to the adjusted Issue
Price of the LYON at the beginning of the accrual period multiplied by the
yield to maturity of the LYON (determined by compounding at the close of each
accrual period and adjusted for the length of the accrual period). The accrual
period will be the six-month period which ends on the day in each calendar
year corresponding to the maturity date of the LYON or the date six months
before such maturity date. The adjusted Issue Price of the LYON at the start
of any accrual period is the Issue Price of the LYON increased by the Accrued
Original Issue Discount for each prior accrual period. Accordingly, Holders
will have to include in gross income increasingly greater amounts of Original
Issue Discount in each successive accrual period. A Holder who purchases a
LYON at a premium over the adjusted Issue Price will include a lesser amount
of Original Issue Discount in income.
The certificates representing the LYONs set forth the issue date, Issue
Price, yield to maturity and amount of Original Issue Discount. The Company is
required to furnish annually to the Internal Revenue Service and to certain
non-corporate Holders information regarding the amount of Original Issue
Discount attributable to that year.
24
<PAGE>
DISPOSITION OR CONVERSION
A Holder's basis for determining gain or loss on the sale or other
disposition of a LYON will be increased by any Accrued Original Issue Discount
includible in such Holder's gross income. Except as described below, gain or
loss upon a sale or other disposition of a LYON (including a sale to the
Company) will generally be capital gain or loss (which will be long-term if
the LYON has been held for more than one year). Under certain circumstances,
the "market discount" rules of the Code will apply to a Holder who purchases a
LYON for less than the adjusted Issue Price (as determined on the purchase
date), in which event, among other things, a portion of any gain may be
ordinary income. Net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income.
A Holder's conversion of a LYON into Common Stock generally will not be a
taxable event, except as described below with respect to a fractional share.
The daily portions of Original Issue Discount will be includible in the
Holder's gross income through the day preceding the date of conversion. The
Holder's basis in the Common Stock received upon conversion of a LYON will be
equal to the Holder's basis in such LYON (exclusive of any basis allocable to
a fractional share of the Common Stock) at the time of conversion. The holding
period for such Common Stock generally will include the Holder's holding
period for the LYON converted. However, the holding period for Common Stock
allocable to Original Issue Discount accrued during the Holder's holding
period for the LYON converted may be treated as commencing on the date after
the date of the conversion.
If the Holder elects to put a LYON to the Company on a Purchase Date or a
Change in Control Purchase Date and receives only cash from the Company in
satisfaction of the Purchase Price or the Change in Control Purchase Price,
such event will be a taxable sale. The Holder will recognize income or loss in
an amount equal to the difference between the amount of such cash received and
the Holder's basis in such LYON.
If the Holder elects to put a LYON to the Company on a Purchase Date and the
Company issues Common Stock in satisfaction of all or part of the Purchase
Price, the exchange of the LYON for Common Stock should qualify as a
reorganization for Federal income tax purposes. If the Purchase Price is paid
solely in shares of Common Stock, neither gain nor loss would be recognized by
the Holder, except as described below with respect to a fractional share. If
the Purchase Price is paid in a combination of shares of Common Stock and cash
(other than cash received in lieu of a fractional share), gain (but not loss)
realized by the Holder would be recognized, but only to the extent such gain
does not exceed the amount of such cash. A Holder's basis in the Common Stock
received in the exchange would be the same as the Holder's basis in the LYON
put to the Company by such Holder (exclusive of any basis allocable to a
fractional share), decreased by the amount of cash (other than cash received
in lieu of a fractional share), if any, received in the exchange and increased
by the amount of any gain recognized by such Holder on the exchange (other
than gain with respect to a fractional share). The holding period for the
Common Stock received in the exchange generally would include the Holder's
holding period for the LYON put to the Company by such Holder. However, the
holding period for Common Stock allocable to Original Issue Discount accrued
during the Holder's holding period for the LYON put to the Company may be
treated as commencing on the date after the date of the exchange.
Under the current advance ruling policy of the Internal Revenue Service,
cash received in lieu of a fractional share of Common Stock upon conversion of
a LYON or upon a put of a LYON to the Company on a Purchase Date should be
treated as a payment in exchange for such fractional share. Accordingly, if
such Common Stock is a capital asset in the hands of the Holder, the receipt
of cash in lieu of a fractional share of Common Stock should generally result
in capital gain or loss, if any, measured by the difference between the cash
received for the fractional share and the Holder's basis in the fractional
share.
Gain or loss upon a sale or other disposition of the Common Stock received
upon conversion of a LYON or in satisfaction of the Purchase Price of a LYON
put to the Company generally will be capital gain or loss if the Common Stock
is held as a capital asset (which gain or loss will be long-term if the
holding period for such Common Stock is more than one year).
25
<PAGE>
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTE UPON TAX EVENT
As previously discussed, from and after a Tax Event Date, at the option of
the Company, interest in lieu of future original issue discount shall accrue
with respect to each LYON from the Option Exercise Date at 4.25% per annum on
the Restated Principal Amount and shall be payable semiannually on each
Interest Payment Date to holders of record at the close of business on each
Regular Record Date immediately preceding such Interest Payment Date. Under
current law, the Company's exercise of its option to modify the terms of the
LYONs will not constitute a taxable event to a Holder of a LYON. In addition,
under existing final Treasury regulations addressing the tax consequences of
modifications of debt instruments (the "Treasury Regulations"), which Treasury
Regulations by their terms generally only apply to modifications which occur
on or after September 24, 1996, upon the occurrence of a Tax Event, the
Company's exercise of its option to modify the terms of the LYONs will not
constitute a taxable event to the Holder of a LYON. Taxpayers, however may
also rely on the Treasury Regulations for modifications that occur after
December 2, 1992 and before September 24, 1996.
In the event that upon the occurrence of a Tax Event the Company exercises
its option to modify the terms of the LYONs, although the final Treasury
regulations promulgated under the original issue discount provisions of the
Code (the "OID Regulations") do not directly address the matter and therefore
the matter is not free from doubt, solely for purposes of determining the
accrual and inclusion of Original Issue Discount in income with respect to the
LYONs subsequent to the Option Exercise Date, each LYON should be treated as
having been reissued on the Option Exercise Date for an amount equal to the
adjusted Issue Price of the LYON as of such date. Under such approach, a
Holder would continue to include Original Issue Discount in income with
respect to a LYON using a yield to maturity equal to 4.25% on a semiannual
basis and would treat semiannual payments of interest on the LYON as a tax-
free return of basis and would reduce the adjusted Issue Price of the LYON at
the beginning of any accrual period by the amount of such payments made during
the prior accrual period. Prospective investors in the LYONs should be aware
that the OID Regulations could possibly be interpreted to require that solely
for these purposes each LYON be treated as having been reissued on the Option
Exercise Date for an amount equal to the adjusted Issue Price of the LYON as
of such date and providing for "qualified stated interest" equal to the
semiannual interest payments. In such event, a Holder of a LYON would not be
required to continue to include Original Issue Discount in income with respect
to the LYON after the Option Exercise Date. Rather, a Holder of a LYON would
include the semiannual payments in income in accordance with the Holder's
regular method of tax accounting. In such case, the semiannual interest
payments would not be treated as either a tax-free return of basis or an
adjustment of the adjusted Issue Price of the LYON.
Prospective investors in the LYONs are urged to consult their own tax
advisors as to the tax consequences to them of the Company's exercising its
option to modify the terms of the LYONs upon the occurrence of a Tax Event.
CONSTRUCTIVE DIVIDEND
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
Federal income tax purposes (including, for example, a distribution of
evidences of indebtedness or assets of the Company, but generally not
including a stock dividend or a distribution of rights to subscribe for Common
Stock) and, pursuant to the anti-dilution provisions of the Indenture, the
Conversion Rate is increased (or the Holders otherwise participate in such
distribution), such increase may be treated as a taxable dividend to Holders
of the LYONs. In addition, if the conversion rate is increased at the
discretion of the Company, such increase may result in taxable income for the
Holders of the LYONs. Prospective investors should also be aware that it is
possible that the Internal Revenue Service ("IRS") could assert that section
305(c) of the Code (i.e., the constructive dividend provisions of the Code)
and the Treasury regulations promulgated thereunder should be interpreted in a
manner such that as a result of a modification of the terms of the LYONs by
the Company upon the occurrence of a Tax Event a Holder of a LYON should be
treated as receiving one or more taxable dividends. Although section 305(c) of
the Code and the Treasury regulations promulgated thereunder are ambiguous in
this regard and although there is no authority directly
26
<PAGE>
addressing the matter, in the opinion of Brown & Wood, special tax counsel to
the Company, such an assertion by the IRS, if made, would not prevail.
PROPOSED TAX LAW CHANGES
On December 7, 1995, the U.S. Treasury Department proposed a series of tax
law changes that would, among other things, prevent corporations from
deducting interest (including original issue discount) on debt instruments
convertible into equity of the issuer or a related party until the taxable
year in which such interest is paid in cash or other property (other than
obligations or equity of the issuer or a related party or cash or other
property the amount of which is determined by reference to the value of equity
of the issuer or a related party). This proposal, if enacted and made
applicable to the LYONs, would prevent the Company from deducting interest
(including original issue discount) payable on the LYONs on a current accrual
basis for United States Federal income tax purposes and could cause some or
all of the interest (including original issue discount) payable on the LYONs
to fail to be deductible by the Company under any other method for United
States Federal income tax purposes. As originally proposed and subsequently
modified, the December 7, 1995 proposed tax law changes would apply, subject
to certain transitional relief provisions not applicable to the LYONs, to debt
instruments issued on or after December 7, 1995. In addition, on March 19,
1996, the U.S. Treasury Department reproposed the December 7, 1995 proposed
tax law changes in substantially the same form as originally proposed, along
with certain additional tax proposals not contained in the December 7, 1995
proposal but which would not apply to the LYONs, as part of its 1997 Budget
proposals. Thus, if ultimately adopted in their current form, both the
December 7, 1995 and the March 19, 1996 proposed tax law changes would apply
to the LYONs. It should also be noted that on March 29, 1996, the chairmen of
the Senate Finance Committee and the House Ways and Means Committee issued a
joint statement to the effect that they intend the effective date of any of
the December 7, 1995 and the March 19, 1996 proposed tax law changes that may
be adopted by their respective committees to be no earlier than the date of
appropriate Congressional action, in which case, these proposed tax law
changes would not apply to the LYONs. The Company cannot predict whether or
not these proposed tax law changes will ultimately become law or what the
effective date of any such changes would be. If legislation is enacted
limiting, in whole or in part, the ability of the Company to either (i) deduct
the interest (including original issue discount) payable on the LYONs on a
current accrual basis or (ii) deduct the interest (including original issue
discount) payable on the LYONs under any other method for United States
Federal income tax purposes, such enactment would result in a Tax Event and
the terms of the LYONs would be subject to modification at the option of the
Company. See "Description of LYONs--Optional Conversion to Semiannual Coupon
Note upon Tax Event." The December 7, 1995 and the March 19, 1996 proposed tax
law changes themselves would not alter the U.S. Federal income tax
consequences of the purchase, ownership and disposition of the LYONs. However,
as described above, the modification of the terms of LYONs by the Company upon
a Tax Event could possibly alter the timing of income recognition by holders
of the LYONs with respect to the semiannual payments of interest due on the
LYONs after the Option Exercise Date.
SELLING SECURITY HOLDERS
The LYONs were originally issued by the Company and sold by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), in a transaction exempt
from the registration requirements of the Securities Act, to persons
reasonably believed by Merrill Lynch to be "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) or other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) or in transactions complying with the provisions of
Regulation S under the Securities Act. The Selling Holders (which term
includes their transferees, pledgees, donees or their successors) may from
time to time offer and sell pursuant to this Prospectus any or all of the
LYONs and Common Stock issued upon conversion of the LYONs.
The following table sets forth information furnished by certain Selling
Holders, including, for each such Selling Holder, principal amounts at
maturity of LYONs beneficially owned by such Selling Holder. With respect to
each Selling Holder, the principal amount set forth may have increased or
decreased since the information
27
<PAGE>
was furnished, and there may be additional Selling Holders of which the
Company is unaware. Except as otherwise disclosed herein, to the knowledge of
Company and based on certain representations made by the Selling Holders, none
of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the Company or any of its
predecessors or affiliates. Because the Selling Holders may offer all or some
portion of the LYONs or the Common Stock issuable upon conversion thereof
pursuant to this Prospectus, no estimate can be given as to the amount of the
LYONs or the Common Stock issuable upon conversion thereof that will be held
by the Selling Holders upon termination of any such sales. In addition, the
Selling Holders identified below may have sold, transferred or otherwise
disposed of all or a portion of their LYONs, since the date on which they
provided the information regarding their LYONs, in transactions exempt from
the registration requirements of the Securities Act.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT MATURITY
OF LYONS BENEFICIALLY
SELLING OWNED AND THAT MAY BE
HOLDER OFFERED HEREBY(1)
------- ----------------------------
<S> <C>
Aetna Growth Fund and Income Fund................. $ 270,000
Aetna Variable Fund............................... 2,730,000
Allstate Insurance Company........................ 6,000,000
Allstate Life Insurance Company................... 6,000,000
Anthracite Mutual Fire Insurance Company.......... 20,000
Arkansas Public Employees Retirement System
(Froley, Revy Investment Co.) .................. 4,150,000
ASIC--Asset Allocation and Management Company
c/o Union Bank of California TTEE................ 200,000
Associated Electric & Gas Insurance Services
Limited.......................................... 1,100,000
Austin Firefighters (Nicholas-Applegate Capital
Mgmt. FBO)....................................... 380,000
Bankers Trust International(2).................... 23,350,000
Bankers Trust TTEE for Chrysler Corp. Employee #1
Pension Plan(2).................................. 900,000
Banque Nationale de Paris Georgetown Branch....... 7,500,000
Baptist Hospital of Miami (Nicholas-Applegate
Capital Mgmt. FBO)............................... 260,000
Behbehani Finance Company......................... 150,000
Bond Fund Series--Oppenheimer Bond Fund for
Growth........................................... 7,000,000
Boston Museum of Fine Arts (Nicholas-Applegate
Capital Mgmt. FBO)............................... 110,000
BZW Securities Limited............................ 40,000,000
Catholic Relief Insurance Company of America...... 200,000
CFW-C, L.P. ...................................... 15,000,000
Champion International Corporation Master
Retirement Trust................................. 3,750,000
Chase Manhattan TTEE for IBM Corp. Retirement Plan
Trust............................................ 4,600,000
Consumer Credit Counseling Service of MD, Inc. ... 250,000
Delta Airlines Master Trust....................... 13,700,000
The Dow Chemical Company Employees Retirement
Plan............................................. 5,095,000
Dunham Associates Fund 2 (Nicholas-Applegate
Capital Mgmt. FBO)............................... 130,000
Engineers Joint Pension Fund (Nicholas-Applegate
Capital Mgmt. FBO)............................... 520,000
Fairfax County Supplemental Retirement............ 230,000
Fairfax County URS Convertible Bonds.............. 480,000
First Colony Life Insurance Company............... 750,000
The Fondren Foundation............................ 200,000
General Electric Mortgage Insurance Corporation
and Affiliates................................... 5,400,000
Genesee County Employees Retirement System........ 1,050,000
George Garvin Brown Trust under Will dtd 3/1/48
National City Bk. KY TTEE........................ 140,000
Goodville Mutual Casualty Co. .................... 40,000
Halliburton Co. Employee Benefit Representative
Convertible Bond Account......................... 1,400,000
Halliburton Co. Employees Trust................... 180,000
Halliburton Foundation, Inc. ..................... 35,000
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT MATURITY
OF LYONS BENEFICIALLY
OWNED AND THAT MAY BE
SELING HOLDERL OFFERED HEREBY(1)
- -------------- ----------------------------
<S> <C>
Hamilton Partners Limited......................... 10,000,000
Highbridge Capital Corporation.................... 22,500,000
JP Morgan Securities Ltd. ........................ 5,820,000
JP Morgan Whitefriars Inc. ....................... 10,000,000
JP Morgan & Co. .................................. 6,000,000
Kapiolani Medical Center (Froley, Revy Investment
Co.)............................................. 400,000
Kettering Medical Center Funded Depreciation
Account.......................................... 300,000
Managed Asset Trust (Travelers Insurance Company). 1,000,000
Massachusetts Mutual Life Insurance Company(3).... 3,500,000
MassMutual Corporate Investors(3)................. 1,000,000
MassMutual Corporate Value Partnership Limited(3). 2,000,000
MassMutual Participation Investors(3)............. 500,000
Medico Life Insurance Company..................... 150,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated(4)(5)............................... 45,240,000
MFS Total Return Fund............................. 2,000,000
Midwestern National Life Ins. Co. of Ohio......... 200,000
MIMLIC Asset Management Co. ...................... 1,125,000
Mutual Protective Insurance Company............... 200,000
New York Life Insurance & Annuity Corporation..... 4,300,000
Nicholas-Applegate Income & Growth Fund........... 3,125,000
The Northwestern Mutual Life Insurance Company.... 9,500,000
Occidental College (Nicholas-Applegate Capital
Mgmt. FBO)....................................... 320,000
OCM Convertible Trust (Oaktree Capital Management,
LLC as agent).................................... 7,540,000
Ohio Farmers Insurance Company.................... 2,000,000
Oregon Equity Fund (Froley, Revy Investment Co.).. 4,000,000
Orrington Investments Limited Partnership......... 4,500,000
Ozark National Life Insurance Company............. 300,000
Pacific Corinthian Life........................... 5,000,000
Pacific Mutual Convertible Bonds Acct. ........... 3,000,000
Phoenix Convertible Fund.......................... 1,500,000
Physicians Life (Nicholas-Applegate Capital Mgmt.
FBO)............................................. 350,000
Physicians Reciprocal Insurers Account #7
(Citibank)....................................... 1,100,000
Port Authority of Allegheny County Retirement and
Disability Allowance Plan for Employees
Represented by Local 85 of the Amalgamated
Transit Union.................................... 4,400,000
Presbyterian Healthcare (Nicholas-Applegate
Capital Mgmt. FBO)............................... 700,000
PRIM Board (Froley, Revy Investment Co.).......... 3,810,000
Queen's Health System (Froley, Revy Investment
Co.)............................................. 300,000
RJR Nabisco, Inc. Defined Benefit Master Trust.... 3,550,000
SAIF Corporation (Froley, Revy Investment Co.).... 5,000,000
Salomon Brothers Inc(4)........................... 11,140,000
San Diego City Retirement (Nicholas-Applegate
Capital Mgmt. FBO)............................... 1,060,000
San Diego County Convertible (Nicholas-Applegate
Capital Mgmt. FBO)............................... 3,740,000
SBC Warburg, Inc. ................................ 14,636,000
Secura Insurance, A Mutual Co. ................... 200,000
Standard Corporation Retirement Plan.............. 60,000
State Employees' Retirement Fund of the State of
Delaware......................................... 1,630,000
State of Connecticut Combined Investment Fund..... 6,000,000
Strong Total Returns Fund, Inc. .................. 7,250,000
The TCW Group, Inc. on behalf of the Boeing
Company Employee Retirement Fund................. 5,910,000
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT MATURITY
OF LYONS BENEFICIALLY
SELLING OWNED AND THAT MAY BE
HOLDER OFFERED HEREBY(1)
------- ----------------------------
<S> <C>
The TCW Group, Inc. on behalf of the Boeing
Company Employee Retirement Fund C............... 1,965,000
The TCW Group, Inc. on behalf of the Cincinnati
Bell Telephone Convertible Value Fund............ 990,000
The TCW Group, Inc. on behalf of the General
Motors Salaried Employees Convertible Fund....... 6,695,000
The TCW Group, Inc. on behalf of the Massachusetts
Mutual Life Insurance Association................ 900,000
The TCW Group, Inc. on behalf of the Medical
Malpractice Insurance Association................ 195,000
The TCW Group, Inc. on behalf of the North Dakota
State Land Department............................ 600,000
The TCW Group, Inc. on behalf of the North Dakota
State Workers Compensation Fund.................. 1,275,000
The TCW Group, Inc. on behalf of the State of
Michigan Employees Retirement Fund............... 2,180,000
The TCW Group, Inc. on behalf of the TCW
Convertible Securities Fund...................... 4,995,000
The TCW Group, Inc. on behalf of the TCW
Convertible Strategy Fund........................ 1,660,000
The TCW Group, Inc. on behalf of the TCW
Convertible Value Fund........................... 3,380,000
The TCW Group, Inc. on behalf of the TCW
Convertible Value Limited Partnership............ 600,000
The TCW Group, Inc. on behalf of the TCW/DW Income
& Growth Fund.................................... 640,000
Teachers Retirement System of Texas............... 20,000,000
Transamerica Life Insurance and Annuity Company... 16,000,000
Travelers Indemnity Company(3).................... 10,490,000
Travelers Insurance Company--Life(3).............. 6,770,000
Travelers Insurance Company, Separate Account
TLAC(3).......................................... 740,000
UBS Securities LLC................................ 13,200,000
UNIFI, Inc. Profit Sharing Plan and Trust......... 410,000
United Food and Commercial Workers Local 1262 and
Employers Pension Fund........................... 1,200,000
Value Line Convertible Fund....................... 500,000
Vanguard Convertible Securities................... 3,000,000
Van Kampen American Capital Convertible
Securities, Inc. ................................ 1,480,000
Van Kampen American Capital Harbor Fund........... 8,400,000
WAFRA Inv. Grade (Froley Revy).................... 600,000
Wachovia Bank of NC Custodian for Wake Forest
University....................................... 830,000
Westfield Life Insurance Company.................. 500,000
</TABLE>
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(1) Does not include shares of Common Stock issuable upon conversion of LYONs.
(2) On February 14, 1996, Bankers Trust New York Corporation filed a report
with the Securities and Exchange Commission on Schedule 13G indicating that
its subsidiary, Bankers Trust Company, (i) as Trustee for various trusts
and employee benefit plans, beneficially owned an aggregate of 2,371,744
shares of Company Common Stock; and (ii) as Trustee for the Marriott
International Employee's Profit Sharing, Retirement and Savings Plan and
Trust and the Host Marriott Employee's Profit Sharing, Retirement and
Savings Plan and Trust, was owner of record for 4,852,914 shares of Company
Common Stock for which it disclaimed beneficial ownership. The Company
believes that Bankers Trust International is a subsidiary of Bankers Trust
New York Corporation.
(3) Affiliates of Massachusetts Mutual Life Insurance Company and the Travelers
Insurance Company own, or have ownership interests in, certain lodging
properties managed by the Company and its subsidiaries. The Company
expresses no opinion as to whether such ownership constitutes a material
relationship within the meaning of applicable securities regulations.
(4) Merrill Lynch and Salomon Brothers Inc have provided from time to time, and
may continue to provide in the future, underwriting, investment banking and
investment advisory services to the Company and its affiliates, for which
such persons have received and will receive customary fees and commissions.
(5) Merrill Lynch was the initial purchaser of the LYONs.
30
<PAGE>
PLAN OF DISTRIBUTION
The LYONs may be offered for sale and sold by the several Selling Holders in
one or more transactions, including block transactions, at a fixed price or
prices (which may be changed), at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at prices
determined on a negotiated or competitive bid basis. LYONs may be sold by a
Selling Holder directly, through agents designated from time to time or to or
through broker-dealers designated from time to time, or by such other means as
may be specified in the applicable Prospectus Supplement.
LYONs may be sold through a broker-dealer acting as agent or broker for the
Selling Holders or to a broker-dealer acting as principal. In the latter case,
the broker-dealer may then resell such LYONs to the public at varying prices
to be determined by such broker-dealer at the time of resale.
The Selling Holders and any agents or broker-dealers that participate with
the Selling Holders in the distribution of any of the LYONs may be deemed to
be "underwriters" within the meaning of the Securities Act, and any discount
or commission received by them and any profit on the resale of the LYONs
purchased by them may be deemed to be underwriting discounts or commissions
under the Securities Act.
To the extent required, the number of LYONs to be sold, certain information
relating to the Selling Holders, the purchase price, the public offering
price, if applicable, the name of any underwriter, agent or broker-dealer, and
any applicable commissions, discounts or other items constituting compensation
to such underwriters, agents or broker-dealers with respect to a particular
offering will be set forth in an accompanying Prospectus Supplement.
LEGAL MATTERS
The validity of the LYONs and of the shares of Common Stock issuable upon
conversion thereof was passed upon for the Company by its Law Department.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
31
<PAGE>
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY UNDERWRITER OR
ANY OF THEIR RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OF-
FERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR
SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IM-
PLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents
by Reference.............................................................. 2
Risk Factors............................................................... 3
The Company................................................................ 4
Use of Proceeds............................................................ 5
Ratio of Earnings to Fixed Charges......................................... 5
Description of LYONs....................................................... 6
Description of Capital Stock............................................... 20
Certain United States Federal Income
Tax Considerations........................................................ 24
Plan of Distribution....................................................... 31
Legal Matters.............................................................. 31
Independent Public Accountants............................................. 31
</TABLE>
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$540,261,000
[LOGO OF MARRIOTT APPEARS HERE]
MARRIOTT INTERNATIONAL, INC.
LIQUID YIELD OPTION(TM) NOTES
DUE 2011
(ZERO COUPON--SUBORDINATED)
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PROSPECTUS
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OCTOBER 9, 1996
(TM)TRADEMARK OF MERRILL LYNCH & CO., INC.
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